California has the third-highest rentalhousing wage in the nation (right after Hawaii and District of Columbia), at $26.65. This means an hourly worker needs to make $26.65 per hour to qualify for an average two-bedroom apartment at 30% of their monthly income.

California’s average renter earns a lot less than $26 per hour.

Let’s start at the bottom: at California’s 2015 minimum wage of $9 per hour, a minimum-wage worker has to work:

118 hours a week to qualify for a two-bedroom apartment at 30% of their income (that’s nearly three full-time minimum-wage jobs); and

92 hours a week to qualify for a one-bedroom apartment at 30% of their income (that’s 2.3 full-time minimum-wage jobs).

The average-wage renter earns $18.96 per hour, twice more than the minimum wage… but still well below the $26.65 rental housing wage. For this average-wage renter, they need to work:

56 hours a week to qualify for a two-bedroom at 30% of their income (that’s 1.4 full-time average-wage jobs); and

52 hours a week to qualify for a one-bedroom at 30% of their income (1.3 full-time average-wage jobs).

But California is a pretty big state with varying income levels and housing costs across its regions. Here is the rental housing wage broken down further:

*Los Angeles’ minimum wage is set to increase to $15.00/hour by 2020.

The housing wage is set by the National Low Income Housing Coalition and represents the hourly wage needed to qualify for an average two-bedroom rental housing payment at 30% of a renter’s monthly income.

The San Jose metro area actually has the best renter’s market in California based on this criteria, as the average hourly wage in San Jose is basically equal to the rental housing wage. Thus, an average renter in San Jose can qualify for a two-bedroom apartment on their own. In contrast, Santa Cruz-Watsonville has one of the worst renter markets in the state, since the average hourly wage is less than half the rental housing wage. There, it takes 2.5 average hourly wage earners to qualify for a two-bedroom.

Increasing the minimum wage is just the first step

All this being said, simply raising the minimum wage won’t solve California’s rent crisis. Increasing the minimum wage across the board has its own drawbacks, from stifling small business growth and slowing job growth overall, to pushing out large businesses that find cheaper labor in other states. A better way to address the wage-rent imbalance is on a local scale.

Regions with higher costs of living need to have higher minimum wages. This will bring up the average wage in areas where rents are well out of reach for service workers.

A good way to do this is by following the local consumer price index (CPI), which reflects increases in goods and services in that area’s economy. It’s common for salaried employees to receive annual increases to account for inflation, so why shouldn’t hourly employees receive the same consideration?

In fact, landlords have already caught on to this idea, as long-term nonresidential leases are often adjusted annually based on CPI. However, when demand outstrips supply, the price of rents rises more quickly than CPI.

Therefore, to really get at the underlying problem, policy makers can loosen up zoning restrictions on multi-family construction. This will allow builders to meet the increased demand from renters, cooling down overheated rents. Some organizations are already working to change outdated zoning limitations that stifle growth and cause rents to rise more quickly than wages. Join them at your local level, or attend a city council meeting.

2 Comments

Sandy
on June 30, 2015 at 4:35 am

Minimum wage is a crock. The problem stems from rent control. Rent control yes keeps rents down but only for people who are already renting. Does not help those who are seeking accommodations. And of course the lower rents on existing tenants stifle building and maintenance. rent control skews everything. A very well earning producer stays a tenant even though he/she can afford to buy because he/she is paying below market rents, while a recent grad attempting to move into the area cannot rent anything decent because of sky high rents. Rent control was supposed to help the elderly but law was not written that way. Raising minimum wage puts strain on businesses and in this economy (or any economy) why would we want to stifle business and jobs? makes no sense. Should be helping businesses, not forcing them to close or move out of the area.

Please find stats where there has been parity and fairness in wages versus housing costs in California. Was it is the mid ’50’s? Some time in the ’60’s? (The answer is never.) Raising the minimum wage by 50% gives employers the excuse to replace workers (who could be on track to make more money and rise within the organization) with alternatives. ATM-like kiosks where you order the employer’s goods and services instead of working with a live person. Put it on the internet and get rid of bricks and mortar. Not necessarily robots but you get the picture.

And using CPI to adjust for wages is why the average hourly rate has risen $1.49 in 50 years (in 2014 dollars). Silicon Valley property taxes went up a staggering 0.45% this past cycle because they are based on CPI (or capped at 2%; whichever is lower). It is also very encouraging (not) to tell an employee that you are more than happy to pay them exactly what they were getting last year adjusted for inflation. It looks like a raise but it isn’t.

This article makes the assumption that a person’s job and wages will never change. Is anyone on staff at First Tuesday making the same income that they enjoyed as seniors in High School? (hope not)

We have very few 1 bedroom and studio rentals in Silicon Valley (and the same is true for California). Most are 2 bedrooms or more. So the figures don’t work for those folks who have a roommate making the $19 noted. Now the household makes $38.00 You can massage the stats and figures all you want but REALITY needs to be taken into account at some point.

klesb Mike, you have identified the problem well. Democrats in government are anxiously trying to apply their economic theories to issues that require market based solutions... – Los Angeles rental crisis continues in 2019

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